Transcript Socially Sustainable Economic Growth

Socially Sustainable Economic
Growth
Christopher A Pissarides
London School of Economics
and SPSU Growth Laboratory
24.04.2014
St. Petersburg, SPSU
Themes
• Economic growth can improve the
condition of all citizens but can also create
conflicts that need to be addressed by
policy
• The main benefits of economic growth to
the population at large come from wellrewarded employment
• How do labor markets deliver the benefits?
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Potential problems with modern
labor markets
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Non-clearance
• Modern labour markets do not clear fast
like output markets
• Adjustments are slow because of time
required to acquire new skills, set up new
companies, change jobs and especially
uncertainties about the future
4
Equilibrium and growth
• In a dynamic economy equilibrium will be
characterised by monopolies, demand and
supply mismatches and unemployment
• The fruits from growth may not be shared
equally and “fairly” as a result – making
growth unsustainable because of social
frictions
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Implications
• Wages do not reflect only labour
productivity but also monopoly power
• Adjustment to shocks is slow and wage
inequalities persist
• Growth sectors usually pay more to attract
more labour
• Growth is not “inclusive”
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Role of policy
• Can reduce equilibrium unemployment by
helping workers find jobs faster
• Can help workers achieve good match
• Can speed up the transition to industrial
society by removing barriers
• Can increase inclusiveness and reduce
inequalities
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Energy needs
• A more common reason given for
unsustainable growth is the use of nonrenewable energy
• I will not discuss this and related reasons
but will focus on employment issues and
income inequalities
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Employment changes during
economic growth
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Stages of economic growth
• In the first stages of economic
development there is reallocation of labour
from agriculture to industry and services
• Green revolution releases labor to migrate
to industry
• Industrial revolution first attracts and then
releases labour as new technology saves
labor
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Beyond industrialization
• Services at first are low-skill ones, serving
the general public
• Eventually sophisticated business (and
some personal) services develop, such as
finance, accounting, medical care
• But the larger number of employees will
always be employed in services that do
not require many skills
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Inclusiveness
• To avoid exclusion of some workers and
unequal distribution of rewards from
growth government needs to remove
barriers to mobility
• Housing costs: large variations across the
country
• Education costs: needs of agriculture,
industry and services vary and change all
the time
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More mobility barriers
• Information deficiencies about jobs across
sectors and locations
• In modern societies structure of welfare
benefits can also be a barrier, e.g.,
entitlements not transferable, housing
benefits limited, unemployment benefit low
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Role of policy
• Here is where social policy can help most
• Welfare benefits should be national, not
local, and be transferable
• These include policies like entitlements to
unemployment insurance, housing
benefits, child support, low-income support
etc.
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Housing
• Housing is a major barrier to mobility. In
cities with many jobs housing costs are
usually much higher
• Government can help with housing policy,
such as provision of social housing
• But it needs to be careful to avoid the
formation of ghettos
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Education policy
• During a transition the first entrants take
advantage of the best opportunities
offered by the new type of jobs, yielding
very high returns to their education
• This introduces large inequalities
• Education policy has a very important role
to play in preparing all workers for
manufacturing and service jobs
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What type of education?
• Skills required for early transition to
industrial society are acquired at
elementary and early secondary education
• These should be provided free because of
the social benefits
• General type of education gives most
flexibility for work in the new economy
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Further training
• Beyond the first stage specialisation takes place
on the job, after employment commences
• It could be informal learning of how the job is
done
• Or formal “apprentice” training, where the
school leaver works as an apprentice to a more
qualified worker and learns the job
• Government could subsidize apprentice training,
as done in Germany
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Higher education
• Higher education and research are also
important because they drive further
growth through new innovation
• In order to achieve high standards in
university research universities need to be
well funded but be independent
• Government research funding is required
to supplement other university income
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Funding
• In the USA university budgets are 3.3% of
GDP, in Europe only 1.3%
• Americans also give more independence
to their universities and public donations
are more generous
• Main reason that Europe lags behind the
US in top university performance and top
innovations
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Information policy
• Providing information about new job
opportunities is one of the least expensive
and most successful policies
• Important to do it for individuals but also
nationally for the general public
• Important to engage companies in schools
about job needs
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Service jobs
• There will always be a large demand for
unskilled services, as country develops
• Retailing assistants, domestic services,
nursing and social care are the main
examples
• But business services also grow,
especially in finance
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Business services
• Business services require highly trained
individuals
• Formal education required at university
level
• With economic development, demand for
business services likely to expand faster
than in proportion to GDP
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Policy in the post-industrial
society
• In the post-industrial society designing
policy gets more difficult
• The reason is that in services inequalities
are larger because of globalization and the
new technology
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New technology: the office
revolution
• Growth of sophisticated services like
finance and international property rights
bring globalization
• Services technology is “weightless”, in the
sense that it can be transferred easily and
applied anywhere (e.g., Microsoft
software)
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Inequalities in pay
• The result is that a few successful people
or companies become very wealthy
• The vast numbers of service employees
remain low-paid
• Attempts to increase pay through
minimum wages and other restrictions
lead to exclusion of lower skills (e.g.,
unemployment or non-participation)
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Inequalities in pay
• Current situation of new technology
benefiting only top incomes is
unsustainable
• In the US virtually all growth in GDP since
the end of the recession went to the top
5% of wage earners
• New technology since 1980s has been
shifting the income distribution in favor of
higher incomes
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Policy response
• Difficult to find good policy response
because of political objections and risk of
disincentives to new ventures
• In the US there has been virtually no
policy response despite well-meaning
intentions by Clinton and Obama
administrations because of difficulty to
pass anything substantial through
Congress
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What can be done?
I. Markets
• In my view best policy response is to allow
the market to function freely, with some
restrictions that ensure good work
standards
• But very limited or no restrictions on things
like hiring and firing, shop opening times
and other forms of regulation of output
markets, and reasonable minimum wages
etc.
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What can be done?
II. Low incomes
• Support for low incomes and excluded
individuals should be provided through the
market
• Such as family income support when the
householder is unemployed, subsidized
education and health care, subsidized
training
• All funded by progressive taxation
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Examples
• “Flexicurity” of Scandinavian countries one
possible example
• School education of Finland and others
who perform highly in PISA tests another
• University structure of US and UK another
• Health care and pensions in Netherlands
and Denmark
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Institutional structure
• For this system to work we need a good
state system and trust from the public
• Poor institutional structures and overeager state controls can bring inefficient
practices and make matters worse
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Conclusions
• Good social policy and good institutional
structures (such as a good legal system,
transparent government, one-stop
decisions) are needed to ensure that
growth is inclusive and so sustainable
• Growth that excludes some individuals
and creates inequalities could lead to
social conflict
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